The Central Provident Fund (CPF) is Singapore’s key pillar of the social security system that helps us save for our housing, medical, and retirement needs. To ensure that members have sufficient savings in their accounts, the retirement sum increases each year after factoring in inflation and the longer life expectancy of future cohorts of Singaporeans.
To ensure they reach their retirement goals, some CPF members may transfer their Ordinary Account (OA) savings to their Special Account (SA). This is one guaranteed way members can earn a higher interest on their savings. Additionally, members may also choose to invest their OA savings in investments such as stocks, unit trusts, and ETFS under the CPF Investment Scheme (CPFIS). Though the returns are not guaranteed, they could potentially earn you higher interest than the prevailing CPF interest rates.
In this article, we compare the returns that could be earned by transferring your OA savings to SA with the returns that could be earned by investing in either unit trusts or ETFs.
How You Can Currently Maximise Your CPF Savings Without Investing Or Transferring
If you are under the age of 55, you can earn up to 5% interest per annum on your CPF savings. On top of the prevailing rate of 2.5% for Ordinary Account (OA) and 4% for Special Account (SA) and Medisave Account (MA), you would earn an additional 1% interest on your first $60,000 in combined balances (up to the first $20,000 in OA).
Likewise, CPF members who are 55 and above can earn up to 6% interest per annum on their CPF savings. You can earn an extra 2% interest on your first $30,000 and 1% interest on the next $30,000 of your combined balance (capped at $20,000 for OA).
By setting aside at least $60,000 in combined savings (up to $20,000 in OA), you would be able to enjoy the highest guaranteed return on your CPF savings.
Transferring OA To SA
A second way to maximise your CPF savings would be to transfer your money from OA to SA. This would allow you to earn the higher interest of 4% from SA rather than the 2.5% from OA.
This might be a strategy that some CPF members may adopt to boost their SA and can be done so long as your full retirement sum of $192,000 (for 2022) is not reached.
Using a simple illustration, if you had $10,000 in your OA, for a 2.5% compounded return, you would have interest of $250 in the 1-year, $1,314.08 after 5-years and $2,800.85 after 10-years.
| Initial | CPF OA (1-Year) | CPF OA (5-Year) | CPF OA (10-Year) |
| $10,000 | $10,250 | $11,314.08 | $12,800.85 |
If you were to transfer your OA money to your SA, you would be able to earn an additional 1.5% compounded interest, for a total of 4% per annum. This would result in you receiving interest of $400 in the 1-year, $2,166.53 after 5-years and $4,802.44 after 10-years.
| Initial | CPF SA (1-Year) | CPF SA (5-Year) | CPF SA (10-Year) |
| $10,000 | $10,400 | $12,166.53 | $14,802.44 |
Simply put, transferring your money from OA to SA would have earned you $150 more in the 1-year, $852.45 more after 5-years, and $2,001.59 more after 10-years.
| Difference | CPF OA-SA (1-Year) | CPF OA-SA (5-Year) | CPF OA-SA (10-Year) |
| $10,000 | $150 | $852.45 | $2,001.59 |
From the table above, we can see how the effect of compounding at a higher interest rate would have earned more on your savings over time. Therefore, this could be a good strategy to adopt if you have a longer runway to grow your savings.
Read Also: Step-by-Step Guide To Transferring CPF Ordinary Account (OA) To Special Account (SA)
CPF Members Who Have Invested Under CPFIS-OA Fared Better
The third way that members can achieve a higher rate of return on their savings is by investing under the CPF Investment Scheme (CPFIS)-OA. After setting aside $20,000, you can invest in a wide range of investment products that are approved under the CPFIS. Additionally, you can invest up to 35% and 10% of your investible savings in stocks and gold.
Read Also: Beginners’ Guide To Start Investing Using The CPF Investment Scheme (CPFIS)
Source: CPF Investment Scheme-Ordinary Account (CPFIS-OA) Profits/Losses Report
According to the CPF Investment Scheme-Ordinary Account (CPFIS-OA) Profits/Losses Report, 83% of the members from October 2020 to September 2021 achieved profits of more than 2.5% per annum on their investments. This is a significant improvement from the 5-year cumulative average of 72% and the 69% achieved based on the cumulative data from 2014.
The better performance from October 2020 to September 2021 could be attributed to the bull run in the US markets and the local bourse, SGX. However, given the weaker market performance in 2022, we may not see such strong numbers for the current year.
Nonetheless, we can see that, on average, CPF members have outperformed the 2.5% annual interest rate since 2014, which supports the case for investing using CPFIS-OA.
Read Also: How Much CPF Savings Should You Have At Every Age Group
Investing Through CPFIS-OA
If you are considering investing via CPFIS, you may be questioning about the individual performance of some of the investment funds approved under CPFIS. We have examined the following funds which are purportedly the best-selling funds in 2021, according to brokerage houses.
[Editor’s note: The information provided on these funds does not constitute a buy/sell recommendation. Please do your own due diligence before making any investments.]
Based on the table below, we can see that all of the best-selling funds actually outperformed the prevailing OA and SA rates over a 10-year period (assuming the dividends are reinvested). However, the performance of these funds may drastically differ in the 1-year and 5-year and, in some cases, may even underperform the CPF rates.
The best performing fund (of the abovementioned funds) over the 10-year period is the Infinity US500 Stock Index, which generated an annualised return of 13.46%, whereas the lowest performing fund generated an annualised return of 5.05% over the same 10-year period. However, these funds are currently generating negative returns for the year as the US markets are in a corrective phase.
If you invested $10,000 in these funds, you would have generated the following returns:
Comparing the returns from the abovementioned funds to the guaranteed 4% CPF returns, we can see that though there could be short-term underperformance, in the long run, the funds have outperformed the CPF returns.
Read Also: Best Ways to Invest Your CPF Money — CPF Investment Scheme (CPFIS)
Another popular investment that can be made under the CPFIS is exchange traded funds (ETFs). We compare a few of the popular ETFs that are approved under the CPFIS scheme.
Looking at the performance, both the STI ETFs have outperformed the OA rate over the last 5-year and 10-year, but have failed to beat the SA rate. However, based on the 1-year or year-to-date (YTD) performance, the STI ETFs are currently outperforming the CPF SA rate.
Another point to note is that if you invested in the SPDR Gold Shares ETF within your allocation limit, your returns would have been lower than the CPF rates depending on your investment horizon.
If you invested $10,000 in these ETF funds, you would have generated the following returns:
Looking at the performance of the ETFs versus the CPF SA returns, you would have been better off with transferring to your SA account.
Should You Invest Your CPF Money Instead Of Transferring To SA?
Based on our small selection of funds, members who invest for the long-term or at least 10 years may have a higher possibility of generating returns that are higher than the prevailing OA and SA rates of 2.5% and 4%, respectively. However, performance may vastly depend on the choice of funds, as we have seen with ETF investments.
With investments, you may also suffer large drawdowns in certain years, which may lead to underperformance, affecting your CPF savings/withdrawal rate depending on your investment horizon. Moreover, there are some costs involved when buying these funds that are not included in our calculations. This may lower your potential return and, hence, needs to be taken into consideration.
Read Also: 7 Types Of Investments You Can Make Using Your CPF OA Monies Via The CPFIS-OA
On the other hand, though the 4% returns of SA are guaranteed, once the OA money is transferred to SA, the action is irreversible. This means you can no longer use the money for your housing or your children’s educational needs. This could be disadvantageous, especially if you’re out of work and still need to pay down your housing loan.
The decision to invest or transfer to SA should be determined by your risk profile and investment horizon. Sometimes, it pays to be safe rather than sorry!
Read Also: Could Making CPF Top Ups Be The Safest Investment For Singaporeans In 2022?
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